Saturday, January 02, 2016

THE TSUNAMI OF MODERN REFERENCES TO THE INVISIBLE HAND

“Then there’s his [Adam Smith’s] famous idea of the invisible hand of the market. The invisible hand phenomenon is the natural correcting of prices and quality that choice brings to the market. The best products will be purchased more than poor products. Prices for better products will rise, but as soon as they get too high the products will stop being purchased. This natural limit on pricing keeps producers honest. It’s also why monopolies are so dangerous in a capitalist economy.”

Comment

Tony Hymes writes a racy-paced piece, eminently readable, but falls over when he equates Smith’s “famous idea” of the “invisible hand” with “the market”. No such connection was made by Adam Smith in Wealth Of Nations (1776). Nor was the market involved in Smith’s other references to “an invisible hand” in his Moral Sentiments (1759), nor in his third reference to it in his History of Astronomy (1744; posthumous 1795).

So from where did Tony Hymes discover the link between Smith’s use of the metaphor and markets?

The first clue to Tony’s error is in his calling the IH “Smith’s famous idea”. It certainlly was not “famously” linked to markets while Smith was alive. I can find no traces of a reference to Smith’s “famous’ IH metaphor among Smith’s contemporaries (1723-90) who read his books and discussed his ideas.

Damn few individuals referred to it thereafter until the 1830s (1 reference) and the 1870s (5 references). But by the 20th century - around 1948 when the first editiion (of 19) of Paul Samuelson’s 5-million best-seller, “Economics: an analytical intoduction” (McGraw-Hill) linked Smith’s use of the famous metaphor to markets and these invented claims entered the public domain, first as a trickle but by 1960, as a fast flowing river. Thereafter from the 1970’s, the linkage became a veritable tsunami of references - hundreds of thousands per year in fact - in both academe and the public media.

Tony Hymes might want to know how Smith’s modest use - only 3 times in his lifetime - of a fairly common (mainly, but not entirely, theological) metaphor in the 17th and 18th centuries is so “famous” today. Clearly it had nothing to do with Adam Smith but had much to do with his post-19ht century epigones and with the epigones of those epigones.

Markets work through VISIBLE prices and cannot work without them. Nothing invisible to transactors is required for markets to work, only their visible prices.

See my essay: Gavin Kennedy: “Adam Smith and the Invisible Hand: From Metaphor to Myth”.

Gavin Kennedy: "Paul Samuelson and the Invention of the modern economics of the Invisible Hand" in History of Economic Ideas, 2010. Both available from Lost Legacy - send me your email addresss.